BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 278| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 278 Author: Gatto (D) Amended: 9/3/13 in Senate Vote: 21 SENATE TRANSPORTATION & HOUSING COMMITTEE : 9-0, 6/25/13 AYES: DeSaulnier, Gaines, Beall, Cannella, Galgiani, Hueso, Lara, Roth, Wyland NO VOTE RECORDED: Liu, Pavley SENATE ENVIRONMENTAL QUALITY COMMITTEE : 9-0, 7/3/13 AYES: Hill, Gaines, Calderon, Corbett, Fuller, Hancock, Jackson, Leno, Pavley SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/30/13 AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg ASSEMBLY FLOOR : 77-0, 5/28/13 - See last page for vote SUBJECT : Low carbon fuel regulations and policies SOURCE : Author DIGEST : This bill directs the Air Resources Board (ARB) to consider the impact on food supply of its low-carbon fuel regulations and to adopt policies that favor fuels with the highest possible sustainability. ANALYSIS : State law assigns the ARB with primary responsibility for implementing California's air quality and CONTINUED AB 278 Page 2 greenhouse gas (GHG) emission policies. State law gives ARB authority to control mobile source air pollution, including the adoption of rules for the reduction of harmful vehicle emissions and the specification of vehicular fuel composition. In 2006, the Legislature passed and Governor Schwarzenegger signed AB 32 (Núñez and Pavley, Chapter 488) to establish a statewide GHG emissions limit such that by 2020 California shall reduce its GHG emissions to the level they were in 1990. ARB instituted a low-carbon fuel standard (LCFS) as one element of achieving the AB 32 goal. This bill: 1. Directs the ARB when promulgating regulations or other policies on the carbon intensity of fuels to consider the following sustainability factors: The full life-cycle carbon emissions from producing the fuel, the positiveor negative effect a fuel source has on domestic food supply including crop displacement, food prices, food shipping, and market conditions, and the direct and indirect land use changes associated with producing the fuel. The state of the fuel market and technologies. 2. Requires ARB by December 2014 to include mechanisms and policies that favor low-carbon fuels with the highest possible sustainability based on the factors lsted above and encourage incentives for sustainable fuels produced without displacement of food crops. Comments Purpose . Executive Order S-01-07 tasked ARB with looking solely at the carbon intensity of California's transportation fuels. The author's office asserts that this bill directs ARB also to take into consideration the impacts fuels have on food production, as well as the overall sustainability of the fuel. The author's office notes that ARB is currently updating its indirect land use change calculation, an algorithm used to estimate the indirect carbon emissions generated by producing CONTINUED AB 278 Page 3 fossil fuels or alternative fuels. Several articles have challenged ARB to take into consideration several additional sources of indirect emissions, including changes in global food shipping caused by the production of a fuel. This bill requires ARB to include these additional factors in its update of the indirect land use change calculation. Citing the University of California Davis Institute of Transportation Studies, the author's office notes that the LCFS generated 78% of its credits from ethanol in 2012. The author's office believes the state should be incentivizing more sustainable alternative fuels that do not displace food crops, like waste-based fuels, cellulosic ethanol, electrification, and efficiency. The author introduced this bill to require ARB to take proactive steps to incentivize non-food based compliance mechanism and require ARB to give preference to non-food based fuels. Carbon intensity . Carbon intensity is a measure of the direct and indirect GHG emissions associated with each of the steps in the full life-cycle of a transportation fuel (also referred to as the "well-to-wheels" for fossil fuels, or "seed or field-to-wheels" for biofuels). The overall GHG contribution from each particular step in the production and delivery process is a function of the energy that step requires. Thus, if a fuel that requires little energy to produce and that produces low carbon emissions when consumed has to be trucked a long way to market, it can still have a high life-cycle carbon intensity because of the high energy requirements of getting it to market. LCFS . In January 2007, Governor Schwarzenegger issued Executive Order S-01-07 in which he ordered the establishment of a statewide goal of reducing the carbon intensity of California's transportation fuels by at least 10% by 2020 and ordered ARB to establish a LCFS for the state. ARB adopted the LCFS regulation in April 2009, and it took full effect a year later. In May 2009, ARB adopted its AB 32 Scoping Plan to map out how to achieve the reduction in GHG emissions by 2020, as required by AB 32. The scoping plan included the LCFS as an early action. ARB staff designed the LCFS to reduce GHG emissions by reducing the carbon intensity of transportation fuels used in California by an average of 10% by the year 2020. The LCFS achieves a 10% reduction in average carbon intensity by establishing an initial CONTINUED AB 278 Page 4 intensity level for specified providers of transportation fuels ("regulated parties") and incrementally lowering the allowable carbon intensity in each subsequent year. For example, modest targeted reductions of 0.5% and 1% are required for 2012 and 2013, respectively. The reductions become more substantial with each year, such that by 2020, the 10% average reduction is achieved. This reduction makes room for low-carbon intensity fuels to enter the market. A regulated party needs to meet each year's specified target, taking into account all of its transportation fuels. If the reduction in intensity exceeds the target, the provider earns a credit, which can be sold or carried forward. The LCFS allows fuels like electricity, hydrogen, and natural gas - which already meet the carbon intensity standards through 2020 - to generate LCFS credits that may be sold. Regulated fuel providers, therefore, can meet their annual carbon intensity levels through several compliance strategies: Making low-GHG fuels, such as biofuels made from waste products; Carrying forward credits from previous years from their own production process; Buying credits from other fuel producers; or Reducing the amount of fuel they sell. A fuel provider meets the requirements of the LCFS if the amount of credits at the end of the year is equal to, or greater than, the deficits. A provider determines its credits and deficits based on the amount of fuel sold, the carbon intensity of the fuel, and the efficiency by which a vehicle converts the fuel into useable energy. Under the LCFS, a regulated party's compliance with the annual carbon intensity requirements is based on end-of-year credit/deficit balancing. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: On-going costs of $1.6 million from the Cost of CONTINUED AB 278 Page 5 Implementation Account (CI Account) within the Air Pollution Control Fund (special) for nine positions starting in fiscal year (FY) 2013-14. Initial costs of at least $400,000 for outside contracts for FY 2013-14 and FY 2014-15 and ongoing annual costs of $135,000 beginning FY 2015-16 from the CI Account to assist ARB with modeling a global food supply analysis. SUPPORT : (Verified 9/3/13) Clean Power Campaign Environmental Defense Fund Milk Producers Council Union of Concerned Scientist OPPOSITION : (Verified 9/3/13) Advanced Ethanol Council American Lung Association Natural Resources Defense Council ARGUMENTS IN SUPPORT : The Milk Producers Council (MPC) states that California's dairy families produce about 20% of the nation's milk and in order to do that, they need a reliable supply of hay and grains in order to feed their cows. The MPC notes that in recent years, that reliable supply has been severely threatened, as our energy policies, particularly those enacted by the United States Congress, have resulted in more than 40% of the nation's corn supply being used to produce ethanol rather than be available for food or animal feed purposes. ARGUMENTS IN OPPOSITION : The American Lung Association (ALA) and the Natural Resources Defense Council (NRDC) are concerned that this bill calls for analyses that are already underway at ARB, does not reflect the benefits of the LCFS and the need for California to move strongly in the direction of reducing carbon content of fuels, and focuses on the issue of "food supply sustainability" rather than sustainability more generally. Both of these organizations note the importance and benefit of the LCFS as a key tool to fight both air pollution and climate change problems, expressing concern that the bill may weaken the LCFS, which they believe is already structured to favor fuels CONTINUED AB 278 Page 6 that do not compete with food production. The ALA and NRDC instead are seeking amendments to this bill that would clarify the benefits and importance of the LCFS, support continued ARB review of direct and indirect land use issues (including food supply), and direct ARB to incorporate policies in the LCFS that favor the least carbon-intensive and most sustainable fuels. ASSEMBLY FLOOR : 77-0, 5/28/13 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom, Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Conway, Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Chesbro, Holden, Vacancy JA:k 9/3/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED